Chapter 7, Problem 3PA

1.

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To Prepare: The sales budget for the month ending December 31.

Explanation of Solution

The following table shows the sales budget.

Company F Sales Budget For the Month Ending December 31
Product and Area	Unit Sales Volume	Unit Selling Price ($)	Total Sales ($)
	(A)	(B)	(A) × (B)
Birdhouse	3,200	50	160,000
Bird feeder	3,000	70	210,000
Total Revenue from Sales			370,000

Table (1)

2.

To determine

To Prepare: The production budget for the month ending December 31.

Explanation of Solution

The following table shows the production budget.

Company F Production Budget For the Month Ending December 31
Details	Units
	Birdhouse	Bird Feeder
Expected Units to be Sold	3,200	3,000
Add: Desired Inventory, December 31	290	250
Total Units Required	3,490	3,250
Less: Estimated Inventory, December 1	(320)	(270)
Total Units to be Produced	3,170	2,980

Table (2)

3.

To determine

To Prepare: The direct materials purchase budget for the month ending December 31.

Answer to Problem 3PA

The following table shows the direct materials purchase budget.

Company F Direct Materials Purchase Budget For the Month Ending December 31
Details	Units
	Wood	Plastic
Required units for production:
Birdhouse	2,536 (1)	1,585 (2)
Bird Feeder	3,576 (3)	3,576 (4)
Add: Desired inventory, December 31	220	200
Total units required	6,332	4,020
Less: Estimated inventory, December 1	(200)	(240)
Total units to be purchased (A)	6,132	3,780
Unit price (B)	$7	$1
Total (A) × (B)	$42,924	$3,780
Total direct materials to be purchased	46,704

Table (3)

Explanation of Solution

Working Notes:

Calculate the direct material (wood) for birdhouse.

$\begin{array}{c}\text{Direct material (wood) cost for birdhouse}\text{=}3,170\times 0.80\text{ft}\text{.}\\ =2,536\text{ft}\text{.}\end{array}$ (1)

Calculate the direct material (plastic) for birdhouse.

$\begin{array}{c}\text{Direct material (plastic) cost for birdhouse}\text{=}3,170\times 0.50\text{lbs}\\ =1,585\text{lbs}\end{array}$ (2)

Calculate the direct material (wood) for bird feeder.

$\begin{array}{c}\text{Direct material (wood) cost for bird feeder}\text{=}2,980\times 1.20\text{ft}\text{.}\\ =3,576\text{ft}\text{.}\end{array}$ (3)

Calculate the direct material (plastic) for bird feeder.

$\begin{array}{c}\text{Direct material (plastic) cost for bird feeder}\text{=}2,980\times 0.75\text{lbs}\\ =2,235\text{lbs}\end{array}$ (4)

4.

To determine

To Prepare: The direct labor cost budget of Company F.

Answer to Problem 3PA

The following table shows the direct labor cost budget for fabrication and assembly department.

Company F
Direct Labor Cost Budget
For the Month Ending December 31
Particulars	Fabrication Department	Assembly Department
Hours Required for Production:
Birdhouse	634 (5)	951 (6)
Bird feeder	1,192 (7)	1,043 (8)
Total Hours Required (A)	1,826	1,994
Hourly Rate (B)	$16	$12
Total Cost (A) × (B)	$29,216	$23,928
Total Direct Labor Cost	$53,144

Table (4)

Explanation of Solution

Working Notes:

Calculate the hours required for the production of birdhouse in fabrication department.

$\begin{array}{c}\text{Hours required for production}\text{=}3,170\times 0.20\text{hr}\\ =634\text{hrs}\end{array}$ (5)

Calculate the hours required for the production of birdhouse in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}3,170\times 0.30\text{hr}\\ =951\text{hrs}\end{array}$ (6)

Calculate the hours required for the production of bird feeder in fabrication department.

$\begin{array}{c}\text{Hours required for production}\text{=}2,980\times 0.40\text{hr}\\ =1,192\text{hrs}\end{array}$ (7)

Calculate the hours required for the production of bird feeder in assembly department.

$\begin{array}{c}\text{Hours required for production}\text{=}2,980\times 0.35\text{hr}\\ =1,043\text{hrs}\end{array}$ (8)

5.

To determine

To Prepare: The factory overhead cost budget of Company F.

Explanation of Solution

The following table shows the factory overhead cost budget.

Company F
Factory Overhead Cost Budget
For the Month Ending December 31
Particulars	Amount ($)
Indirect factory wages	75,000
Depreciation of plant and equipment	23,000
Power and light	6,000
Insurance and property tax	5,000
Total	109,000

Table (5)

6.

To determine

To Prepare: The cost of goods sold budget of Company F.

Answer to Problem 3PA

The following table shows the cost of goods sold budget.

F Company
Cost of Goods Sold Budget
For the month ending December 31
Particulars	Amount ($)	Amount ($)	Amount ($)
Finished goods inventory, December 1			19,440 (9)
Work-in-process inventory, December 1		29,000
Direct material:
Direct materials inventory, December 1	1,640 (10)
Direct materials purchases	46,704
Cost of direct materials available for use	48,344
Less: Direct materials inventory, December 31	(1,740) (11)
Cost of direct materials placed in production	46,604
Direct labor	53,144
Factory overhead	109,000
Total manufacturing cost		208,748
Total work-in-process during the period		237,748
Less: Work-in-process inventory, December 30		(35,400)
Cost of goods manufactures			202,348
Cost of finished goods available for sale			221,788
Less: Finished goods inventory, December 30			(18,080) (12)
Cost of Goods Sold			203,708

Table (6)

Explanation of Solution

Working Notes:

Calculate the beginning finished goods inventory.

$\begin{array}{c}\text{Beginning finished goods inventory}=\left(320\times \$27\right)+\left(270\times 40\right)\\ \text{=}\text{\$8,640}\text{+}\text{\$10,800}\\ \text{=}\text{\$19,440}\end{array}$ (9)

Calculate the beginning direct material.

$\begin{array}{c}\text{Beginning}\text{direct mateial purchased}\text{=}\left(200\times \$7\right)+\left(240\times 1.00\right)\\ \text{=}\text{\$1,400}\text{+}\text{\$240}\\ \text{=}\text{\$1,640}\end{array}$ (10)

Calculate the ending direct material.

$\begin{array}{c}\text{Ending}\text{direct mateial purchased}\text{=}\left(220\times \$7\right)+\left(200\times 1.00\right)\\ \text{=}\text{\$1,540}\text{+}\text{\$200}\\ \text{=}\text{\$1,740}\end{array}$ (11)

Calculate the ending finished goods inventory.

$\begin{array}{c}\text{Ending finished goods inventory}=\left(290\times \$27\right)+\left(250\times 41\right)\\ \text{=}\text{\$7,830}\text{+}\text{\$10,250}\\ \text{=}\text{\$18,080}\end{array}$ (12)

7.

To determine

To Prepare: The selling and administrative expenses budget of Company F.

Explanation of Solution

The following table shows the selling and administrative expenses budget.

Company F
Selling and Administrative Budget
For the Month Ending December 31
Particulars	Amount ($)	Amount ($)
Selling expense:
Sales salaries expense	70,000
Advertising expense	18,000
Telephone expense	550
Travel expense	4,000
Total selling expense		92,550
Administrative expense:
Office salaries expense	21,000
Depreciation expense – office equipment	600
Telephone expense – Administrative	250
Office supplies expense	200
Miscellaneous administrative expense	400
Total administrative expenses		22,450
Total Operating Expenses	115,000

Table (7)

8.

To determine

To Prepare: The budgeted income statement of Company F.

Explanation of Solution

Prepare the budgeted income statement of Company F.

Company F
Budgeted Income Statement
For the Month Ending December 31
Particulars	Amount ($)	Amount ($)
Revenue from sales		370,000
Less: Cost of goods sold		(203,708)
Gross profit		166,292
Operating expenses:
Selling expenses	92,550
Administrative expenses	22,450
Total operating expenses		(115,000)
Income from operations		51,292
Other revenue and expenses:
Interest revenue	200
Interest expense	(122)	78
Income before income tax		51,370
Income tax expense (30%)		(15,411)
Net Income	35,959

Table (8)